American Central Bank Leaves Interest Rates Unchanged as Economy Shows Signs of Stability

At the end of their two-day meeting, the American central bank left the main interest rate unchanged in the range of 5.25 to 5.50 percent, where they moved it last summer. So interest rates remain at their highest level since 2001 for the sixth time in a row.

The markets did not expect any other situation, as inflation in the United States began to accelerate again. Especially the main part that does not include variable food and energy prices, which the Fed will keep a close eye on. It rose year-on-year to 3.8 percent in March, which is still far from the Fed’s two percent target. In addition, the world’s largest economy is showing signs of stability, growing faster than other developed countries, despite earlier gloomy forecasts. Also, the job market there is fast.

This is also the reason why betting on the first class cut is gradually moving away. Although only a few weeks ago the markets were expecting interest rates to already be at lower levels by now, now they are not expecting this before the end of this year.

Although recent statements by some Fed officials indicate that they are ready to cut rates even if the economy grows strongly, according to economist Jana Steckerová from Komerční banka, inflation must show clearly it is close to two percent for several months in a row, and that it will stay even here.

“In our opinion, this will not happen soon. Although inflation will come down, development will change. The situation is also complicated by the upcoming US presidential election, before which we assume that the Fed will not want to take any measures. A reduction at the end of this year cannot be ruled out, but March next year is more likely for us,” says Steckerová.

Also, according to Jan Tyleček, chief analyst of the XTB brokerage, it is increasingly apparent that the chance for rates to fall is decreasing this year. “Some commentators are already considering the scenario that the next Fed rate move will be up,” he says. According to Tyleček, other central banks, including the CNB or the European Central Bank, would have to respond to this.

“High interest rates in the US attract capital, and if we continued to reduce interest rates rapidly in the Czech Republic, there would be a risk that the koruna would weaken significantly,” said the analyst. The Czech National Bank will decide on rates on Thursday.The bank’s board is expected to cut the interest rate by half a percentage point.

Fed v accompanying statement also announced that it will reduce the speed at which it is declining to balance from June. Every month, it will issue only 25 billion dollars (587.4 billion CZK) in bonds of the Ministry of Finance, against the current 60 billion dollars. The move is to ensure that the financial system does not run out of reserves.

US Fed Chairman Jerome Powell said at a press conference that the US economy has made significant progress, but that the rest of the economic outlook is uncertain. He also reminded that the inflation has not shown enough decline in the past months, so the central bank is still very vigilant.

“Inflation is still too high and the next recession is uncertain. We do not expect it to be appropriate to cut rates until we have more confidence that inflation is closer to two percent. We are ready to keep rates at current levels for a longer period of time,” the central bank chief said.